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Trade Wise: Uzma remains on growth trajectory

UZMA BHD, which specialises in subsea supportive services in the oil and gas industry, has seen its revenue more than double to RM407.9 million from RM192.6 million over the past three years. Its net profit has nearly tripled to RM33.6 million from

RM12.1 million for the period.

The stock has rallied from 72.4 sen in January 2011 to RM3.57 last Friday, after it hit a historical high of RM4.22 in July.

How long will the stellar financial performance and share price rally last?

Its CEO Datuk Kamarul Redzuan Muhamed targets Uzma to sustain its revenue growth pace of 40% in the next three years, at least.

Besides the RM1.8 billion order book that will keep income flowing in for three years, his confidence hinges on its expansion plans, including acquisitions that have been made and a few that are in the pipeline.

Kamarul, who founded the company, stresses that Uzma’s three core businesses — geoscience and petroleum engineering, drilling and well services, and production, operation and optimisation services — are expected to expand significantly over the next few years, allowing the group to embark on special projects such as brownfield rejuvenation and risk service contracts (RSCs).

“We plan to expand our drilling and well services significantly. We plan to inject the bulk of our capital expenditure from our recent rights issue [worth RM78 million] to grow this segment and become a regional player,” Kamarul tells The Edge.

He discloses that Uzma is eyeing at least two more RSCs from Petroliam Nasional Bhd (Petronas). “We plan to take on more RSCs before we hit our resource and cash limits. At the moment, we still have the capacity to take on two to four RSCs,” he says.

Kamarul acknowledges that RSCs are a high-risk game. But Uzma’s expertise in enhanced and improved oil recovery has given the company advantages in developing marginal oilfields, which require high efficiency.

In fact, Uzma was earlier hired by Petronas to conduct studies on the reserves of the domestic marginal oilfields.

“We are already providing the services for these projects and although we already have good sustainable recurring income growth, we will be able to see further upside if we take on these special projects,” he says, adding that the projects will give Uzma longer earnings visibility.

Uzma took on its first RSC in April with foreign partner EQ Petroleum Developments Malaysia Sdn Bhd to develop Tanjung Baram Field off the coast of Sarawak.

Uzma has 30% equity interest in the nine-year contract worth RM326 million while EQ Petroleum holds the remaining 70%.

“Our plan is to drill two wells and tie them to an existing platform for processing. We plan to get the first production by the end of the first quarter next year and I am confident about it as Tanjung Baram is a proven field,” says Kamarul.

Although the first production is expected to come in 11 months after the signing of the agreement, Kamarul says Uzma obtained a two-month extension due to weather factors. Uzma is expected to start drilling in January instead of next month.

Nonetheless, Kamarul, who is also the single largest shareholder of the company, stresses that RSCs are just one of Uzma’s core activities.

He points out that the recent acquisitions of Well Services (Thailand) Ltd and MMSVS Group Holdings Ltd for a total of RM95 million have added the “missing jigsaw pieces” to the company’s well services. “We now have the complete value chain in well services.”

And this is the division that will earn Uzma recurring income. “All oil wells need to be serviced regularly. Most wells are aged between five and eight years and this requires high maintenance. The acquisitions [in Thailand] now give us the capability to take on a [full] range of well services projects,” says Kamarul.

He adds that the acquisitions brought in new technology to the group, adding a fleet of modern hydraulic workover units (HWUs) and a truck mounted service rig. Uzma has the largest fleet of HWUs in Asean.

Furthermore, the takeover of Premier Enterprise Corp (M) Sdn Bhd (PEC), which is involved in the supply of chemicals for oil recovery, is another feather in its cap. The acquisition, which expands the group’s market share in the business to more than 50%, is expected to be the next phase of growth for Uzma.

Being a subsea services company, Uzma is also looking to win contracts for brownfield rejuvenation. “We have done several studies on brownfields and we believe that these projects fit into our portfolio,” says Kamarul.

“Brownfield rejuvenation projects provide Uzma with a better contracting strategy as we get paid for the barrels that we produce as well as the subsea services required for the projects,” he adds.

Kamarul points out that the key to rejuvenating brownfields is to repair the wells. “When the wells are not producing, they become idle. We have our own internal solution for this, as we have the full value chain.”

Winning a brownfield project will make Uzma a regional player in oil and gas upstream services. “We are looking forward to participating in brownfield projects. Whether we win the contracts or not, we’ll live to fight another day.”

He adds that although Uzma prefers brownfields located in Malaysia, as it has already conducted the relevant studies and has locally-based assets, it is also looking overseas.

This article first appeared in The Edge Malaysia Weekly, on September 22-28, 2014.